Demand for technology is growing exponentially, as is the pressure to sustainably secure materials required for its products. This tension is forcing technology and mining companies to analyze their supply chains and re-evaluate traditional material flows.
As highlighted in the September Fortune article, “Tesla is trying to mine its own lithium,” the restructuring of traditional supply chains is well underway. Companies want to guarantee access to sustainably extracted prime materials, while also applying circular concepts to repurpose their products and waste.
Pressure to do this stems from rising consumer and investor demands for transparency along the supply chain, which starts with mined materials. Commitments to ethical sourcing practices and benefit sharing with host communities, alongside environmental compliance and decarbonization, are vital for companies to secure project support and funding.
ERM recently hosted three cross-sector forums with leading mining and technology companies to understand how these two different, yet co-dependent, industries approach these issues. To capture highlights from our series, we spoke with Alison Drury, ERM’s Technology Market Leader, and Louise Pearce, ERM’s Mining and Metals Market Leader, to hear their key takeaways and insights.
Q: These two sectors sit at opposite ends of the product supply chain, with mining companies focused on sourcing metals and minerals, and technology companies using these materials to manufacture consumer-facing products. Why are we starting to see these historically separate sectors have greater impact on one another?
Louise: Traditionally, industrial and manufacturing processes have followed a fairly linear model. Raw materials are extracted from the ground, processed, and then sent to various manufacturers to be turned into consumer products. The products are used and then often discarded. Due to population growth, urbanization, and the need for materials to support the low carbon economy transition, the demand for raw, mined materials continues to increase. The technology sector is generating a considerable part of that demand.
Alison: Due to ambitious sustainability commitments on the part of technology companies—and by extension to their supply chains—we have seen the likes of Tesla and Apple go straight to the mine site to learn and to gather information. In some cases, this leads to supply chain reinvention. These changes are in an effort to secure the supply of critical materials like lithium and cobalt, increase the transparency of sourcing, and sustainably manage the reliability of their prime materials.
I see this trend continuing as more technology companies innovate processes and develop ways to recycle and reuse metals. Apple is starting to do this in newer iPhone models that are made with 100% recycled rare earth elements. Apple’s robot, Daisy, is able to recover 32 kg of rare earth materials from every 100,000 iPhones it recycles (Apple 2019, 2020). Not all technology companies have gone this far (yet), but in line with building more transparent sourcing practices, many companies are extending their supplier audit programs to smelting operations.
Fifty years ago, the mining industry followed a fairly linear model. This is changing as technology companies start to acquire mineral rights to develop projects in an effort to secure their supply, control the transparency of sourcing, and manage the reliability of their prime materials.
Q: Consumers and investors are demanding companies demonstrate ever-greater transparency. What did we hear about how the mining and technology sectors are tackling this?
Louise: Select companies are looking at digital ledgers, such as blockchain technology, to help track the source of their materials. That said, during the forums it was noted that tracing becomes problematic at some smelters. Although a smelter is usually controlled by a single mining company, the scale of feed that is required drives a need for multiple inputs or sources of prime and recycled materials. As these commingle, it becomes difficult to trace and differentiate the material back to a specific source.
Participants felt that achieving the ideal traceable system will take a level of engagement between sectors that’s not yet been seen, but stated firmly that complexity can’t be allowed to hinder progress. We may not be able to “trace materials down to the atom,” as one forum member noted, but incremental progress is okay. Initiatives can start and be modified as sectors pilot new ways of operating and collaborating.
Alison: The technology industry currently uses conflict minerals such as tungsten, tin, tantalum, and gold, which in industry parlance is known as 3TG. To drive assurance and sustainable practices across the supply chain, it important that technology companies use 3TG minerals sourced from conflict-free zones. In practice, this process is just starting. Forum participants said that their companies’ long-term goals are to achieve responsible sourcing “across the periodic table and around the world.” They also noted that their companies are leveraging both traditional and social media platforms to convey their commitments and actions to stakeholders and customers.
We can’t forget the human element in the mining and technology equation either. Forum members discussed how traceability is crucial to help address smuggling loopholes, which can lead to unsafe conditions as well as uncertainty around supply purity and/or source. Figuring out how to stop this now is essential, both to protect people, and because the challenge will only become more complex as the demand for traceability expands.
Q: The use of digital ledgers is very new. What are the challenges participants mentioned regarding current methods, such as audits and certifications?
Louise: We’ve found that mining companies and consumers alike depend on and trust third-party certification and verification programs as a way to measure compliance. This is particularly relevant to companies in these two sectors, since product sourcing and composition, in addition to community and labor best practices, are under constant scrutiny. Forum participants cautioned that reporting mechanisms are quickly becoming inefficient due to the proliferation of standards and the requirement to constantly “prove it through the paperwork.”
Alison: We perceive there is a lot of overlap as both sectors presently run their own, sometimes duplicative, audit programs. The Initiative for Responsible Mining Assurance (IRMA) was mentioned as a framework that aims to provide cross-sector standards. Even so, companies may not have the final say in which framework to use, and often have to report against those that their stakeholders prefer, regardless whether they agree that is the best option.
While there are shared elements between various programs, the lack of a uniform approach creates a reporting challenge. Companies in both sectors have limited resources dedicated to this, so there is a need to align metrics and reporting formats.
A proliferation of standards is becoming overwhelming for mining and technology sectors, and “proving it through the paperwork” is quickly becoming inefficient. There is a need to align on common reporting elements that allow a company to disclose their processes and metrics.
Q: Circularity is quickly becoming embedded in the business models of many companies. How was this concept discussed as playing out in these two sectors?
Louise: Some mining companies see the circular economy as a disruption to their current business model. Mining participants in our forums acknowledged this as a risk, but they also spoke to the opportunity inherent in developing new circular approaches. For example, leading companies see the “urban mine” as a resource.
Overall, miners are rethinking their value chains, re-engineering waste streams, entering into take-back agreements, and/or re-purposing off-shoots from smelters and ore processing. Many use smelting technology to repurpose their metal scrap, as well as downstream by-product (e.g., factory scrap) and consumer waste to produce semi-fabricated products.
One area that is growing rapidly is demand for materials to support low carbon technology (e.g., copper). Approximately 50% of the EU’s current copper demand is met from recycled materials (European Copper Institute 2018). However, as the need for these battery metals increases, this demand cannot be met by recycled materials alone.
Alison: As businesses think about the future and the longevity of their supply chains, some technology companies are studying macro-societal trends to gauge what materials will be considered acceptable in the years ahead. Many now aspire to use closed-loop initiatives. This will eliminate the use of prime materials and help them design their products to be disassembled so that components can be reused. Where recycling and the reuse of high-grade materials is not feasible, as is the case with materials in computer chips, companies are exploring opportunities to repurpose these pieces in other markets.
Q: Tell us more about the challenges companies face when incorporating circular economy concepts.
Louise: Both sectors share the motivation to participate in the circular economy, and much progress has been made. But the complexity of day-to-day operations and high levels of regulation can hinder even the best-intentioned and designed efforts. Moreover, each region has a different set of protocols. For example, in the forum we discussed how waste collected from operations cannot simply be shipped from one region to another, which can impede a company’s ability to source potentially (re)usable material.
Another thing that became clear through our conversations is that the numbers need to add up. It currently costs more to recycle metals than to source prime materials, and it is not apparent that customers are willing to pay a premium for recycled options. To make this a feasible revenue stream, companies will need to find consumers who attribute greater worth to these goods. Barring that, we need technological advances to bring the price of recycled materials to parity or below their prime counterparts.
Alison: While the technology sector purchases relatively high amounts of cobalt, sector demand for elements such as gold is not as high. Participants discussed whether economies of scale, derived from building tech consortia or by bringing in parties from other sectors, could tip the balance in favor of cost-effective new business models able to serve all players. Ultimately, as one participant aptly pointed out, developing a strong economic case involves more than “redirecting costs from one industry into another; it requires creating new demand to build additional revenue streams.”
It currently costs more to recycle metals than to source prime materials, and it is not apparent whether customers are willing to pay a premium for them. Consumers will need to attribute increased value and pay a premium for recycled materials to make it a feasible revenue stream. Barring that, we need technological advances to bring the price of recycled materials to parity or below their prime counterparts.
Q: Mining and technology are two sectors with big operational footprints. How did each sector describe working on the ground with community and governments to support socio-economic development?
Louise: Building shared value with host communities is of the utmost importance for mining companies. This is particularly true when stakeholder perceptions and expectations become entrenched and antagonistic, an all-too-familiar situation for both the mining and technology sectors.
It is not enough to rely on philanthropy and community investment. Research has shown that one cannot “buy” a robust social license. We have helped companies invest more time and identify the resources required to build resilient relationships with community stakeholders, so that together they can create and protect social value and realize joint wins.
Given they often have more than a century of experience confronting these challenges, mining companies have learned that upfront community engagement, proactive impact/risk management, and the delivery of socio-economic benefits are all crucial for reputation management. Getting it right means potentially mitigating opposition that can lead to project delays or barriers to new greenfield developments as well.
Alison: In the forums, we discussed how a company’s reliance on local resources is a balancing act that communities and stakeholders do not always see as tipped in their favor.
New developments bring urbanization to remote communities, but they can also lead to inflation and raise concerns about the overuse of resources such as land, energy, and water. Representatives from both sectors also acknowledged that the products they produce at the operational level are primarily exported. Locally, this can add to a sense of imbalance or, at worst, exploitation and community dissatisfaction.
Project development, associated with well-known global technology brands, sometimes consists of what one participant labeled a “honeymoon period.” This appears to be ending, as local communities recognize the downsides of having these operations in their backyard and push back on new or expanding facilities. Technology companies are increasingly recognizing the importance of building shared benefits and thinking through how they can demonstrate the value they bring.
A company’s reliance on local resources is a balancing act that communities and stakeholders do not always see as tipped in their favor. Companies need to invest time and resources to build resilient relationships with community stakeholders, create and protect social value, and realize joint wins.
Q: As we look ahead to the next three to five years, how do you see the intersection of mining and technology companies evolving? How will partnerships between the sectors benefit them and their stakeholders?
Louise: Urbanization and increasing societal reliance on technology are driving greater demand for critical materials that traditionally come from mining. We expect sustainable mining practices and assets to leap forward over the next few years to help meet the demand for improved performance and further transparency.
This can take the form of low carbon operations, building mines that supply the materials to support a low carbon economy, and/or ensuring mining creates higher societal value. All sectors need to increase focus on the responsible collection and recycling of metals and minerals. This includes mining companies partnering with downstream manufacturers, such as technology companies, on take-back programs as well as product and packaging designs that maximize the recycling opportunity.
Alison: Technology brands are willing to challenge traditional business models. They see value in the potential to enact change and have the resources and vision to innovate, disrupt, and build momentum. As discussed, we see this disruption now with technology companies getting into mining. However, I think we will see a continued convergence of the sectors around social responsibility, transparency, scalability, and interoperability, which will create compelling incentives to increase collaboration.
As stakeholders continue to push for greater transparency and supply chains continue to evolve, industries will continue to intersect in ways never seen before. Companies that are able to recognize and implement cross-sector processes and partnerships have the potential to build competitive advantage in their pursuit for more efficient and sustainable products.
References
Apple Inc. 2019. Environmental Responsibility Report; 2019 Progress Report, covering fiscal year 2018. April 2019. Available online at: https://www.apple.com/environment/pdf/Apple_Environmental_Responsibility_Report_2019.pdf. Accessed December 2020.
Apple Inc. 2020. Product Environmental Report, iPhone 12. 13 October. 2020 Available online at: https://www.apple.com/environment/pdf/products/iphone/iPhone_12_PER_Oct2020.pdf . Accessed December 2020.
European Copper Institute. 2018. Europe’s demand for copper is increasingly met by recycling. Available online at: https://copperalliance.eu/benefits-of-copper/recycling/. Accessed December 2020.
IRMA (Initiative for Responsible Mining Assurance). 2020. Available online at: https://responsiblemining.net/. Accessed December 2020.
Stringer, David, Yvonne Yue Li, and Bloomberg. 2020. “Tesla is trying to mine its own lithium.” Fortune. 28 September 2020. Available online at: https://fortune.com/2020/09/28/tesla-mine-lithium-batteries-cheaper-cars/. Accessed December 2020.
